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But it’s not the only choice for a company looking to bulk up its
distribution channels. Before you take the leap, it’s worth
considering a few alternatives first.

Keep in mind, each of these options present some disadvantages,
including loss of control, inability to build a brand and
potential increases in liability. Just like franchising, these
methods may also be expensive or legally cumbersome – so it’s
smart to consult a lawyer. Also, the Federal Trade Commission
sets strict rules on what is or isn’t a franchise – and you don’t
want to inadvertently run afoul of FTC rules.

Here are three alternatives to franchising.

1. “Business opportunity” or licensing. By
FTC definition, when you set up a franchise, you’re providing a
common trademark (generally speaking, your brand name) for all of
your franchisees to use. If you don’t wish to start a franchise,
one option is to allow a person to open a cookie-cutter version
of your business, under their own name. This is called a
“business opportunity” or a license.

As a licensor, you don’t have to comply with the same federal
disclosure requirements as would a franchisor, which makes the
legal documentation and the sales process less complex – at least
at the federal level. That said, a biz op, as it’s commonly
known, will need to comply with a patchwork quilt of state laws
(as well as some state franchise laws) in 26 different states.

The main drawback, though, is that you won’t be able to build a
valuable common consumer brand this way. That can put you at a
significant disadvantage when competing with franchisors, who can
use advertising to promote a common brand. But if branding is not
important to you, this is certainly a viable option.

2. Trademark licenses. A second option is to
simply license your trademark, which is quite similar to what a
franchisor does. But here’s the difference: By definition, a
franchisor also must provide “significant operational support” or
exercise “significant operating control.” When you’re a trademark
licensor, you can’t provide such assistance or control – such as
training programs, operations manuals or management advice – or
else the FTC will likely deem you to be operating as a
franchisor.

Unfortunately, very few of us own businesses where the name is so
valuable that people would pay for it without also requesting
help in establishing the business itself. And even if you could
license your trademark, you’d have to think carefully about
whether you’d want someone to use your name without the ability
to control how they use it. A single rogue operator could destroy
the brand that took you years to build.

3. The “no fee” route. The third alternative to
franchising involves offering interested parties an option that
doesn’t involve any fees. That doesn’t mean, of course, that you
give up profits. But you have to structure these transactions in
a way that’s markedly different than franchises, which by
definition collect initial fees, royalties, advertising fees,
training fees and/or fees for equipment.

So, for instance, you could charge no fee but allow someone to
start a dealership or distributorship, making money on the bona
fide wholesale mark-up of your products to them. Or you could
allow others to be sales representatives, where you collect all
revenues and pay them a commission to sell your product or
service. Another option would be for you and another party to
create a joint venture in which you would share ownership of the
business – and your only compensation would come in the form of
profits (or losses).

To decide whether any of these alternatives is better than
franchising, ask yourself three basic questions: Do I want to
build a common brand? Do I want to control the brand or provide
assistance to my operators? How do I want to be compensated?

Once you’ve answered those questions, it’s easier to determine
which expansion strategy is most likely to maximize the value of
your business model.